08 B 32998

The issue in this case was whether the hanging paragraph of 11 U.S.C. § 1325 applied to so-called “negative equity” in connection with the purchase of a motor vehicle that is subject to that provision. In this case, the debtor purchased a motor vehicle within 910 days of filing his bankruptcy petition for $29,798.00. Along with a $4,500.00 down payment, the debtor traded in his old car valued at $14,450.00. However, the debtor still owed $22,498.68 on the trade-in, leaving a difference of $8,048.68. This difference is referred to as “negative equity” in motor vehicle financing. The debtor entered into a financing agreement with Americredit Financial Services, Inc. (Americredit) to purchase the motor vehicle and for payment of the negative equity to pay off the debt owed on his trade-in. After the debtor filed his bankruptcy petition, Americredit filed its proof of secured claim for $34,698.07. However, the debtor’s proposed plan listed a secured claim for Americredit of $13,250.00, the motor vehicle’s current value. Americredit objected to the debtor’s plan, arguing that the debtor may not bifurcate the motor vehicle debt under the hanging paragraph of § 1325. The debtor argued that it may bifurcate the debt, stating that the negative equity component of the financing is not included under the hanging paragraph of § 1325. The Court held that the entire claim was a subject to the hanging paragraph of § 1325. The court certified the matter under 28 U.S.C. § 158 for direct appeal to the Circuit. The Seventh Circuit affirmed the ruling on March 1, 2010. See In re Howard, 597 F. 3d 852.